BT 2009 Annual Report Download - page 31

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
BUSINESS AND FINANCIAL REVIEWS OTHER MATTERS
29BT GROUP PLC ANNUAL REPORT & FORM 20-F
BUSINESS AND FINANCIAL REVIEWS
Prior to 2009
The BT of today was largely created by a radical restructuring of the
company in the 2002 financial year. This restructuring involved a
rights issue (raising £5.9bn), the demerger of O2(comprising BT’s
wholly owned mobile assets in Europe), the disposal of significant
non-core businesses and assets, the unwinding of Concert (our
joint venture with AT&T) and the creation of customer-focused lines
of business.
In 2007, we completed a number of acquisitions, including:
dabs.com (an online retailer of IT and technology products)
PlusNet (an internet service provider)
International Network Services (INS) (the California-based global
provider of IT consulting and software solutions).
In 2008, our acquisitions included:
i2i Enterprise Pvt Ltd (a Mumbai-based company which
specialises in IP communications services for major Indian and
global multinational companies)
Comsat International (a provider of data communications
services for corporations and public sector organisations in Latin
America)
the IT infrastructure division of CS Communication & Systèmes
(the French IT systems and network services provider)
Frontline Technologies Corporation Ltd (one of the leading
providers of end-to-end IT services in the Asia Pacific region).
We also completed the merger of I.NET SpA, an Italian data services
provider with BT Italia SpA (formerly Albacom).
Our property portfolio
At 31 March 2009, we occupied approximately 7,000 properties in
the UK and approximately 400 properties in the rest of the world.
The majority of the UK properties are owned by – and leased from –
the Telereal Group, which is part of the William Pears Group.
Approximately 85% of the UK portfolio consists of operational
telephone exchanges, which contain exchange equipment and are
needed as part of our continuing activities. Other general purpose
properties consist chiefly of offices, depots and computer centres.
Our group property team manages waste and recycling on
behalf of the rest of the business. More detailed information on
waste management and recycling can be found in the chart on
pages 24 to 25.
Principal risks and uncertainties
In common with all businesses, BT is affected by a number of risks
and uncertainties, not all of which are wholly within our control.
Although many of the risks and uncertainties influencing our
performance are macroeconomic and likely to affect the performance
of businesses generally, others are particular to our operations.
This section highlights some of those particular risks and
uncertainties affecting our business but it is not intended to be an
extensive analysis of all risk and uncertainty affecting our business.
Some may be unknown to us and others, currently regarded as
immaterial, could turn out to be material. All of them have the
potential to impact our business, revenue, profits, assets, liquidity
and capital resources adversely.
We have a defined enterprise wide risk management process for
identifying, evaluating and managing the significant risks faced by
the group. The key features of the risk management process are
provided in the statement on Internal control and risk
management on page 72 . The group risk register captures the
most significant risks facing the business. Each risk is assigned a
senior management owner responsible for monitoring and
evaluating the risk and the mitigation strategies.
In the 2008 Annual Report & Form 20-F, we highlighted
‘Transformation Strategy’ and ‘Technological Advances’ as principal
risks. These are not included for 2009 because the group’s
transformation programme was completed during the first half of
the year. In addition, as the new 21CN core network has now been
completed, any ongoing risks associated with general technological
advances are managed as part of the group’s normal risk
management process. Ongoing risks associated with the general
competitive environment are set out below.
The principal risks and uncertainties should be considered in
conjunction with the risk management process, the forward looking
statements in this document and the Cautionary statement
regarding forward looking statements on page 148.
Competitive activity
We operate in highly competitive markets where customers can
switch suppliers based on price and service levels as well as
competitor activity. The profitability of these markets is declining as
the competitive intensity and volatility of these markets increases.
Factors contributing to levels of competitive activity include
‘resource rich’ competitors from adjacent markets entering our
markets; competitors emerging with radically different costs bases,
capabilities, propositions and/or business models; the emergence
of new technologies and products offering increased performance
at lower cost; decline in market growth rates and profitability due
to the current economic environment; increased levels of customer
churn and reduced levels of market differentiation.
Global economic and credit market conditions
A general reduction in business activity resulting from the current
economic downturn in the global economy could lead to a loss of
revenue and profits for us. Our business performance could also be
adversely affected by increased exposure to the default of
customers and suppliers as economic conditions worsen. In
addition the impact of the current credit market conditions
potentially impacts our ability to access liquidity in the capital
markets and increases the risk of a counterparty exposure should
any counterparty default on its contractual obligations. Volatility in
the currency markets also affects our revenues and costs and while
appropriate actions are taken to mitigate this risk there remains
ongoing exposure to foreign exchange movements.